Logbook loans - what are they and why you should avoid them
Citizen Advice has recently a launched a campaign to raise awareness of logbook loans, an expensive form of credit secured against an asset, usually a motor vehicle. There are concerns over the lack of consumer protection for this type of lending causing hardship for many.
What is a logbook loan?
- normally a short term loan where the borrower puts up an asset, normally their car, as security against the loan
- ownership of this asset then moves from the borrower to the lender
- if the borrower defaults on the loan payments the lender can repossess the asset without a court order
- in some cases the car may have been sold and then repossessed from the purchaser who had no knowledge of the debt
- interest rates on logbook loans are normally around 400%
What are the concerns regarding logbook loans?
- because the asset secured against the debt becomes the property of the lender there is incentive to negotiate if the borrower gets into problems repaying the loan
- the asset can be seized once a default notice has been issued
- if the asset is sold to another person it can still be seized by the lender from the new owner leaving them losing both the asset and all the money they paid for it
- aggressive debt collection tactics have been employed by lenders or their agents with threats of violence in some cases
What changes need to be made regarding logbook loans?
- tighter regulation of logbook loans ensuring affordability checks are carried out in all cases
- end to the practice of encouraging applicants to exaggerate their income to gain a larger loan
- change the law to end the repossession of assets from someone other than the original borrower
- end to the aggressive debt collection practices by some lenders and their agents
